Navigation

Article Search

Attorney Search

Search Articles

Find Attorneys

Supreme Court Decision Limits Trust Tax Deductions

April 14th, 2008

A recent Supreme Court decision limits the amount a trust can deduct from its federal taxes for fees paid to firms that advise on how to invest the trust's assets. The court found that a trust can deduct investment advisory fees only if the fees exceed 2 percent of the trust's adjusted gross income. Previously, federal courts had disagreed whether such fees would be limited by the 2 percent floor.

The case, Knight v. Commissioner (U.S. No. 06-1286, Jan. 16, 2008), involved a trust set up by Henry Rudkin, who was one of the founders of the Pepperidge Farm Company. The trustee, Henry Knight, hired an outside investment firm to advise him on investing the trust assets. The trust deducted all of the fees on its federal income tax return, but the IRS claimed the fees were subject to the 2 percent floor. This meant the trust owed an additional $4,448 in taxes.

Under federal tax rules, individuals and trusts can claim itemized deductions as long as the deductions are more than 2 percent of their adjusted gross income. In the case of a trust, there is in an exception to the 2 percent floor if the trust deducts costs that would not have been incurred if the property was not held by a trust or an estate.

The Supreme Court ruled that this exception does not apply to investment advisor fees. According to the Court, it is common for individuals to hire investment advisors, so it is not an expense that only a trust would incur. The ruling will not be a major issue for most trusts, but in the case of larger trusts, the trustee may have to file larger estimated tax payments to avoid penalties.

The Estate Planning & Elder Law Firm PC

Bill founded The Estate Planning & Elder Law Firm, P.C. in 1994. Bill limits his practice to the areas of estate planning and administration, incapacity planning, Medicaid, asset protection planning, and elder law. He is one of (15) fifteen attorneys practicing in Virginia, Maryland and the District of Columbia, ce...

Tell us about your legal issue and we will put you in touch with William Fralin.

I understand that by contacting a lawyer or a law firm through ElderLawAnswers, I will not create an attorney-client relationship and the message will not necessarily be treated as privileged or confidential.

Felinton Elder Law & Estate Planning Centers

Mindy Felinton concentrates in the areas of Medicaid planning, Veterans' Benefits, asset protection, nursing home planning, elder law, wills, estate planning, trusts, living wills, powers of attorney, probate administration and trust administration and began her legal career 30 years ago as an Assistant State Attorney...

Tell us about your legal issue and we will put you in touch with Mindy Felinton.

I understand that by contacting a lawyer or a law firm through ElderLawAnswers, I will not create an attorney-client relationship and the message will not necessarily be treated as privileged or confidential.

Daniel N. Steven, LLC

Daniel N. Steven is an attorney licensed in Maryland and the District of Columbia. with many years of experience in complex estate planning and Elder Law. He is rated by Martindale-Hubbell as an AV Preeminent 5.0 out of 5 rated attorney.

Tell us about your legal issue and we will put you in touch with Daniel Steven.

I understand that by contacting a lawyer or a law firm through ElderLawAnswers, I will not create an attorney-client relationship and the message will not necessarily be treated as privileged or confidential.